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The 2022 Tax Offender of the Year

Thursday, December 29th, 2022

It’s time once more for that super prestigious award I give out, the Tax Offender of the Year.  One year there will be no candidates, but 2022 absolutely isn’t the year.  Let’s look first at some who didn’t make the cut.

Melissa Horner of Bozeman, Montana tried the old favorite of withholding employment taxes but not remitting them to the government.  This scheme works when you start it (government isn’t efficient), but never works in the long run.  The IRS rightly sees this as theft, and all such cases are investigated.  It also doesn’t help when the withheld taxes are used for vehicles and home renovations.  She received 30 months at ClubFed and must make restitution of $2,878,522.

Philip J Layfield is enjoying 12 years at ClubFed for a scheme that was described by the judge who sentenced him as “sheer evil.”  Mr. Layfield, a disbarred attorney, specialized in personal injury cases.  He took funds from settlements and used them for personal expenses and also didn’t file and pay taxes.  He also did a Ponzi-like scheme of paying previous clients who he embezzled settlements from with more recent settlements.

Another criminal described as “one of the most evil people that I have ever dealt with in the law” is spending 14 years at ClubFed for a multi-million dollar investment fraud along with cheating on his taxes.  Christopher L Burnell of Highland, California promised rates of returns as high as 100%.  You know the old saying, “If it sounds too good to be true it probably is.”  Well, that was the case with Mr. Burnell, as the money went towards gambling and luxury items.

Just missing out on the top three were John, Helen, and Dimitrios Zourdos of Rome, New York.  The three (John and Helen are married and Dimitrios is their son) operated three Dippin Donuts shops.  They had a unique method of paying their employees, remitting taxes, and reporting income: If a payment came in cash, it never happened!  They provided their accountants with books that didn’t show the cash going in or out, and paid employees off the books.  The scheme worked for five years (from 2012 to 2017), but the IRS discovered this with predictable results.  John received 30 months at ClubFed, Helen received 20 months, and Dimitrios received 10 months.  They must also make restitution of more than $2 million to the government.  You could say there was a hole in their scheme.

Coming in third place were Bruce Bise and Samuel Mendez.  They founded a cryptocurrency company called Bitqyck, and raised $24 million in an “Initial Coin Offering (ICO)” from over 13,000 investors.  You can guess where the money went: personal expenses, cars, luxury furnishings, and rent.  At least they took casino trips and helped our economy in Las Vegas!  Well, the money they took shockingly didn’t make it to their tax returns, and our government lost out on $1.6 million in taxes.  (Mr. Bise and Mr. Mendez separately had a civil settlement with the Securities and Exchange Commission.)  Mr. Bise and Mr. Mendez each receive 50 months at ClubFed and they must make restitution to the IRS.

Just missing the brass ring was Matthew Marshall of Whitefish, Montana.  As an author who one day wants to write detective fiction I was intrigued by this story which, at first, I took as fiction.  Mr. Marshall defrauded a Montana investor of $2.3 million by claiming to be a former Force Recon Marine and CIA operative who needed funds to run fake CIA rescue missions in foreign countries.  Yes, that’s accurate.  Yes, the investor was defrauded.  As noted in the press release:

“Marshall promoted a fantasy world filled with fake missions carried out by fictitious operatives for clandestine agencies in faraway lands for phony purposes. It was all fake, but unfortunately it was paid for with real money from a real victim. And the money never went anywhere except to Marshall’s personal accounts,” U.S. Attorney Leif Johnson said. “The lengths to which Marshall went to carry off this fraud can hardly be overstated. He used a phone application to send fake text messages; he created false emails; he sent the victim prayer beads collected during a fake mission; and he got a tattoo to falsely signify that he was a member of ‘Force Recon,’ etc. The list goes on.

Mr. Marshall will enjoy six years at ClubFed and must make restitution of $3,254,327.

Before I get to the winner, I want to highlight a case that unfortunately has no tax charges.  Had it had any such charges, this would be tops on my list for 2022.  Instead, this is a pure fraud case.  Karl S Greenwood pled guilty to wire fraud and money laundering related to “OneCoin” earlier this month.  Mr. Greenwood allegedly earned €2.735 billion in fraudulent profits from this scheme.  He, and alleged co-conspirator Ruja Ignatova (aka “the Cryptoqueen”) did not have a high opinion of their victims:

In an August 9, 2014, email between Greenwood and Ignatova, Ignatova described her thoughts on the “exit strategy” for OneCoin. The first option that Ignatova listed was, “Take the money and run and blame someone else for this . . . .” And in a September 11, 2016, exchange with Ignatova’s brother, Konstantin Ignatov, Greenwood referred to OneCoin investors stating, “These ppl are idiots,” to which Ignatov responded, “as you told me, the network would not work with intelligent people ;)”

Mr. Greenwood will be sentenced in May.

Automating procedures and paperwork is a boon to all of us.  It increases productivity and allows for all of us to have a higher standard of living.  This also includes those of us who intend to violate the law.  If you can automate criminal actions, it increases the potential for ill-gotten gains.

Kevin Kirton of Dallas, Georgia decided that automation was a great idea.  He developed computer programs to file fraudulent tax returns with the IRS.  The program stole identities and could be used to file the returns.  As I said, automation helps on the dark side, too.  The program could even be accessed remotely!  And there was more:

To help conceal the fraud activity, Kirton developed techniques to hide Internet Protocol addresses so the IRS could not trace a fraudulent tax return back to one particular origination point. Kirton also set up a bootleg phone system that he believed would not be susceptible to wiretaps to communicate with other criminals.

Unfortunately for Mr. Kirton, the government did discover this and executed a search warrant.  They found hundreds of prepaid debit cards in the names of the victims, fake driver’s licenses, and a Treasury Inspector General for Tax Administration (TIGTA) report, “Income and Withholding Verification Processes are Resulting in the Issuance of Potentially Fraudulent Tax Refunds.”  Mr. Kirton was arrested.

If I was arrested I would seek counsel and would be quite careful in what I did.  Mr. Kirton had different ideas:

While Kirton’s case was pending and he was out on bond, he telephonically contacted an associate who was detained at the Robert A. Deyton Detention Facility, seeking to influence the testimony of a cooperator in his case. Recorded jail calls between Kirton and his jailed associate show that Kirton repeatedly sought to convey veiled threats to the cooperator through the jailed associate. Due to this conduct, Kirton’s bond was revoked and he was detained pending resolution of his case.

Mr. Kirton pleaded guilty in June 2021 to access device fraud and aggravated identity theft; he was sentenced this past March to six years and nine months at ClubFed.  He must also make restitution of $629,551.

That’s a wrap on 2022.  I wish all of you a Happy, Healthy, and Prosperous New Year.

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Answering to a Higher Authority

Wednesday, August 10th, 2022

Robert Brockman, the 2020 Tax Offender of the Year, passed away last weekend.  Mr. Brockman was facing a 39-count indictment for tax fraud and related charges; his trial was set for this coming February.  Mr. Brockman’s attorneys argued that he was incompetent to stand trial due to dementia; however, the judge had ruled him competent.  The criminal case is now moot—Mr. Brockman is answering to a higher authority; the civil case will continue against his estate (the IRS attempting to obtain back taxes, penalties, and interest).

My condolences to his family.

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The 2021 Tax Offender of the Year

Friday, December 31st, 2021

It’s time once more for that (not really) most prestigious of prestigious awards, the Tax Offender of the Year.  One year I’ll find that I don’t have many deserving winners (probably the year after I retire); however, there were plenty of individuals, businesses, and organizations that strove to take down the top prize.

We’ll start with the runners-up.  Dinesh Sah of Coppell, Texas saw the Paycheck Protection Plan loans as a wonderful thing.  Let’s not take out one; let’s do 15.  And let’s make up phony employees, payroll expenses, and tax returns to get $24.8 million in loans.  He pleaded guilty in March and was sentenced in July to more than 11 years at ClubFed.

Mustafa Shalash of Hilliard, Ohio didn’t commit huge fraud.  Rather, it’s the scope and what he did that is at issue.  Mr. Shalash won a Powerball jackpot in 2015 for $1 million.  He felt that the $290,000 withheld for taxes should come back to him, so he invented $1 million of gambling losses for his 2015 tax return.  Additionally, he had foreign bank accounts, and transferred $440,000 of his winnings to one in Jordan.  Yes, he ignored the FBAR (Report of Foreign Bank and Financial Accounts).  If you are lucky enough to win a prize in the lottery, your luck will likely become public information.  It would have been a lot easier for Mr. Shalash to simply have paid the additional tax.  Instead, he’ll be paying restitution of over $250,000 and could find himself at ClubFed for up to three years.

Aaron Aqueron of Clermont, Florida is a very good promoter.  He convinced numerous individuals that just by having a mortgage (or other debt) you’re entitled to a tax refund!  Sounds great.  But what he did was state that the financial institutions withheld tax when they hadn’t.  His clients filed tax returns claiming $14.6 million in refunds, and the IRS issued $7.6 million before catching on.  Yes, mortgage interest is an itemized deduction and, yes, if you have tax withheld you get to claim that on a tax return.  But the tax must actually be withheld—a minor step that was missed.  And Mr. Aqueron only charged between $10,000 and $15,000 to his soon-to-be-audited clients.  (If it sounds too good to be true, it probably is.)  Mr. Aqueron pleaded guilty earlier this month and will likely be residing at ClubFed in the near future.  Mr. Aqueron’s alleged co-conspirators will be tried in January.

Our last runners-up are a rap duo out of Detroit.  Sameerah Marrel and Noelle Brown were the “Deuces Wild” rap group.  Their rap career apparently didn’t take off, so they needed a different source of income.  They allegedly turned to tax fraud, inventing a number of trusts and purportedly noting that there was tax withheld on the trusts’ returns.  This allowed the duo to ask for $13.6 million in refunds (they received $5,539.049.28) when the actual amount of withholding was $0.  They’re facing years at ClubFed if convicted.

Coming in third place this year is Gary Hunsche of Troy, Illinois.  Mr. Hunsche owned and operated two employee leasing companies called Unique Personal Consultants and Unique Risk Management.  Mr. Hunsche faced a dilemma: How would he pay for his indoor basketball court on his new home (and other improvements to his home)?  He came up with the decidedly illegal answer: he would withhold payroll taxes but not remit $9.4 million.  It’s a wonderful scheme while it’s working, but it’s the one kind of tax fraud that will always be caught.  Sooner or later one of the employees’ returns gets looked at by the IRS, and the IRS wonders where the payroll taxes are.  He was sentenced to four years at ClubFed.

I really, really wanted to put the IRS as this year’s winner but they’re in second place.  The issues with the IRS this year are legion.  Good luck calling the IRS for assistance (you have a less than 10% chance of getting through).  Or you could be like my call earlier this week: You get in the queue, and after two hours waiting on the Practitioner line you hear, “We’re having technical difficulties.  You will be transferred back to the main number….We’re sorry, but due to extremely high call volume in the topic you’ve chosen, we cannot take your call at the present time.  Goodbye.”

Each year many returns filed with the IRS ‘fall out of processing.’  Normally, that means a one to four day delay in processing.  This year, it means at least four months.  The IRS Operations Status Page shows that as of December 18th there were 6.3 million unprocessed individual returns.  Clients are complaining, and there’s nothing I (or any other tax professional) can do.

If you filed an amended return, maybe your return will be processed within twelve months, but I wouldn’t bet on that.  The IRS Operations Page was changed to note, “The current timeframe can be more than 20 weeks instead of up to 16.”  I’m quoting 18 months (average) to my clients who have to paper-file amended returns, and I think that’s realistic.  If you can electronically file your amended return, you will shave off a few months (you’re likely looking at one year).

And then there are the IRS notices.  I had two clients receive notices stating their 2018 returns hadn’t been filed (both were electronically filed and accepted).  I called the IRS and found out that for one, it was a processing issue and my client should have received a new notice this past week (it didn’t come, so another call to the IRS is needed).  The other client never received a notice that he had to call the Identity Theft Unit.  He hasn’t been able to get through yet.

Many of my clients received notices and timely responded.  Unfortunately, while there are deadlines on taxpayers, there are no deadlines on the IRS.  I had one matter that took three years for the IRS to actually respond to our communication.  (The understaffed Taxpayer Advocate Service agreed to take the case, but the next day we received a letter from the IRS resolving the issue.)  I have another matter that has now exceeded three years (the IRS keeps sending it back and forth between their Cincinnati and Ogden offices).

I have had at least ten clients file Tax Court petitions with the IRS in 2021.  (These are the clients I know about–there could be others.)  Two of the cases involve genuine disputes related to Automated Underreporting Unit (AUR) notices and were destined to get to Tax Court.  Filing the petitions is the means to get these disputes to IRS Appeals.  The other eight are matters where the IRS never read my clients’ timely filed responses.  The IRS simply issued Notices of Deficiency, so the only method available for the taxpayers to dispute the matters was filing Tax Court Petitions.  In all of these cases, had someone read the response it is likely that the matter could have been resolved.

This is just a sampling of the disastrous status of “service” within the IRS today.  I do want to point out that I am not complaining about any of the employees I have dealt with this year.  In almost every case, the IRS employees I speak with are professional, courteous, and honestly want to resolve the matters.  The problems relate to (a) IRS top management refusing to admit to all of the problems, (b) the IRS drowning in paper (partially caused by the pandemic), (c) the Biden Administration refusing to order staff back to work at IRS Service Centers, and (d) Congress not properly funding the IRS.  Unfortunately, it will take several years for the IRS to work its way out of its current hole.  It’s time for the IRS to give accurate time-frames, extend response times to taxpayers, and for Congress to fund the IRS appropriately.

Oleg Tinkov is a Russian entrepreneur.  Like me, he is a graduate of the University of California, Berkeley.  By any standard he’s successful.  He founded Tinkoff Credit Systems in 2006  It’s now the second largest provider of credit cards in Russia.  In 2013, the bank went through an Initial Public Offering (IPO) on the London Stock Exchange; the IPO raised $1.1 billion (coincidentally, his net worth became $1.1 billion at that time).  TCS Group, the holder of Tinkoff Bank, is officially based in Limassol, Cyprus.  Mr. Tinkov earlier formed a wholesale electronics business he later sold, a food company, a brewery, and a cycling team.  His net worth is estimated by Bloomberg at $6.9 billion and by Forbes at $7 billion.

In 1996 Mr. Tinkov became a naturalized US citizen.  In 2013, three days after the IPO Mr. Tinkov relinquished his US citizenship at the US embassy in Moscow.  When you relinquish your citizenship, you must have filed all your tax returns and complete IRS Form 8854 (Initial and Annual Expatriation Statement).  If you renounce your citizenship and your net worth is more than $2 million, you owe the expatriation tax.  The fair market value is based on you hypothetically selling all your assets the day prior to your expatriation.

Mr. Tinkov was asked about his net worth by his US-based accountant, and he told him it was less than $2 million.  Rather than admitting the truth, he used $300,000 instead of the true net worth of $1.1 billion.  There is no extradition treaty between the US and Russia, so he likely felt safe.

Two things I’ve repeatedly said over the years are, “It’s always easier to simply pay what you owe,” and, “If you’re a celebrity or someone else who is a public figure, you want to make sure your tax returns are squeaky clean.”  While Mr. Tinkov isn’t a household name, Forbes annually publishes a list of billionaires and his name has been on it.  It wouldn’t take long for someone at the IRS to wonder why only 0.027% of his net worth was noted on his Form 8854.

Unbeknownst to him, an investigation was begun.  In September 2019 he was indicted.  In February 2020 he went to London; the United Kingdom does have an extradition treaty with the US.  Mr. Tinkov was arrested.  The US sought extradition; Mr. Tinkov contested on medical grounds (he was undergoing treatment for leukemia).

On October 1, 2021, Mr. Tinkov pleaded guilty to one count of filing a false tax return.  He paid the $248,525,339 of tax he would have had to pay back in 2013.  He also paid a $100 million fraud penalty, interest, and other penalties; the total penalties and interest added $260,415,845 to his total tax bill of $508,936,184.  Yes, he didn’t have to pay his taxes for eight years but it would have been far less costly to simply have prepared the tax returns correctly in the first place.  And half a billion in tax evasion gives Mr. Tinkov the 2021 award as Tax Offender of the Year.

That’s a wrap on 2021.  May all of you have a Happy and Healthy New Year.

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Nominations Due for 2021 Tax Offender of the Year!

Tuesday, December 14th, 2021

In just over two weeks it will be time for me to hand out the annual Tax Offender of the Year award.  I suspect that once again there are too many deserving nominees.  If you have a suggestion, feel free to email it to me at rcfox at claytontax dot com.  Our previous winners:

2020: Robert Brockman
2019: Lawrence R. Gazdick, Jr.
2018: California’s Train to Nowhere
2017: State and Local Pension Crisis
2016: Judge Diane Kroupa
2015: Kenneth Harycki
2014: Mauricio Warner
2013: U.S. Department of Justice
2012: Steven Martinez
2011: United States Congress
2010: Tony and Micaela Dutson
2009: Mark Anderson
2008: Robert Beale
2007: Gene Haas
2005: Sharon Lee Caulder

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IRS Looking for “Hidden Treasure” (Unreported Cryptocurrency Income)

Monday, March 8th, 2021

The IRS’s Director of the Office of Fraud Enforcement, Damon Rowe, announced at a conference that the IRS has started “Operation Hidden Treasure.”  The IRS is looking for individuals (and businesses) which had cryptocurrency income but didn’t report it on their tax returns.  The IRS is investing in technology to look through the blockchain and find those sales.  What does this mean for the individual who hasn’t reported his cryptocurrency sales?

First, it’s clear that the IRS thinks there’s gold in ‘dem ‘dar hills.  And based on what I’ve seen over the last few years, they’re correct: There are plenty of taxpayers who thought (and think) that if there’s no tax form, there’s no reason to report income.  This is absolutely the case for some traders in cryptocurrency.  Some of the individuals who traded are young and simply didn’t (or don’t) know that the US tax system is based on self-reporting income and that all income is taxable unless Congress exempts it.

Let’s say you didn’t report a few hundred dollars in sales.  Simply amend your return, report the additional sales, and pay the tax (and interest).  Don’t forget to amend your state return, too, if applicable.  You are not the target of Operation Hidden Treasure.

Let’s say you have $500,000 or more of unreported capital gains from cryptocurrency.  You should contact a tax attorney–you are the target of the IRS.  It’s almost always better for you to come forward rather than the IRS to come after you.  But at this level of unreported income you likely need formal representation from an attorney, and a tax attorney can give you specific advice for your situation.  Criminal tax fraud includes possible jail time; civil tax fraud carries a whopping 75% penalty.  It’s better to be compliant than to be facing those penalties.

Another option–one I strongly recommend against–is playing “audit roulette.”  The IRS won’t find me; my transactions are too hidden or (whatever).  There is no statute of limitations on civil tax fraud.  (Yes, the burden of proof is on the IRS but if you have $1 million of unreported cryptocurrency sales and the IRS can prove it, that’s a pretty good ‘badge of fraud.’)

Will the IRS find some hidden treasure of unreported cryptocurrency sales?  Absolutely.  If this is you, it’s time to come clean.

 

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The 2020 Tax Offender of the Year

Thursday, December 31st, 2020

Many are called; few are chosen. It’s time once again for that most prestigious of prestigious year-end awards, the Tax Offender of the Year. It takes more than cheating on your taxes; you need to really cheat or do a series of Bozo-like actions. Every year I hope that there are no worthy candidates; as usual, there are plenty.

The United States Congress get a nomination. “The compromise deal that passed for Covid relief could have been done a lot sooner,” the nominator wrote. And she’s absolutely right. But this reminds me of a joke I remember from Get Smart! When asked how long it would take for an appropriation bill for Control to pass, the answer is two months; when asked how long it would take for an emergency appropriation bill to pass, the answer is three months.

The California Department of Tax and Fee Administration (CDTFA) received a nomination. Consider if you sold items through Amazon.com, and you had two sales to California residents in 2014-2016. The CDTFA is coming after you for back sales taxes, penalties, and interest because your products were possibly warehoused in an Amazon warehouse in California. There are many court cases on this, and even the Los Angeles Times–usually a proponent of additional taxes in California–thinks that the CDTFA is nuts. But Congress and the CDTFA didn’t even make the top three.

Finishing in third place was Winfred Fields. Mr. Fields is enjoying a 109-month stay at ClubFed for a brazen tax fraud scheme. Mr. Fields specialized in preparing returns for workers in oil exploration in the Gulf of Mexico. They were paid by US companies, and Mr. Fields filed returns noting that per tax treaties with the United Kingdom, Spain, or New Zealand these workers’ pay was exempt from US taxation. They weren’t, but the IRS processed the returns. He also required the tax refunds to be deposited in his bank account (a violation of Circular 230, the regulations that tax professionals fall under), so he could take his fee off the top. He received $3,097,974 of illicit refunds and kept $1,302,271 for himself.

Coming in second place are Stein Agee & Corey Agee of the Atlanta area. The Agees developed syndicated conservation easements (SCE), and sold those to high-income individuals. For every dollar you contributed to one of their partnerships, you got a $4 tax deduction. If someone came to me with this as a possible investment, I would immediately think there’s a problem. A fundamental rule of taxation is you can only deduct what you pay for, and it’s hard for me to envision how you can get a (say) $40,000 deduction for investing $10,000. But I digress…

We’re not talking about a small tax fraud here. Per the Department of Justice press release, more than $1.2 billion of fraudulent deductions were taken; the Agees received more than $1.7 million in commissions. Stein and Corey Agee both pleaded guilty to one count of conspiracy to defraud the United States; they’re looking at up to five years at ClubFed plus probable monetary penalties.

And, yes, $1.2 billion of fraud is only second place.

In 1970, a company called Universal Computer Systems (UCS) was formed. It began as a regional data processing service bureau, and expanded in the 1980s, mainly providing computer services to automobile dealers. The company was successful, and expanded to have offices not only in the United States but in several other countries.

In 2006, UCS merged with Reynolds and Reynolds, another automobile dealer computer service company. The merger was valued at about $2.8 billion. Robert Brockman, who was CEO of UCS became CEO of the combined company (which took the Reynolds and Reynolds name). Their current products include dealer management systems for inventory, accounting, contracts, and logistics. It remains a successful business.

Mr. Brockman allegedly began having foreign entities to help shelter his wealth. There is nothing wrong with this, provided you appropriately disclose the entities and pay your US taxes based on the Internal Revenue Code. You likely can figure out where this is headed….

Mr. Brockman’s entities, which included trusts and companies in Bermuda, the British Virgin Islands, and Nevis (part of Saint Kitts and Nevis, two islands in the Caribbean). There are bank accounts in these countries and in Switzerland and somehow not all of these accounts allegedly made it onto Mr. Brockman’s annual Reports of Foreign Bank and Financial Accounts (the FBAR).

Mr. Brockman also allegedly filed false tax returns from 2012 – 2018, ignoring capital gains that were made in various transactions (detailed in the indictment). There are also counts of wire fraud, money laundering, and conspiracy. From the Department of Justice press release:

According to the indictment, Brockman, a resident of Houston, Texas, and Pitkin County, Colorado, used a web of offshore entities based in Bermuda and Nevis to hide from the IRS income earned on his investments in private equity funds which were managed by a San Francisco-based investment firm. As part of the alleged scheme, Brockman directed untaxed capital gains income to secret bank accounts in Bermuda and Switzerland. The indictment further alleges that to execute the fraud, between 1999 and 2019, Brockman took measures such as backdating records and using encrypted communications and code words to communicate with a co-conspirator, among other alleged actions.

In addition to the tax offenses, the indictment alleges that, between 2008 and 2010, Brockman engaged in a fraudulent scheme to obtain approximately $67.8 million in the software company’s debt securities. As CEO, Brockman was contractually restricted from purchasing any of the software company’s debt securities without prior notice, full disclosure, and amending the associated credit agreements. The indictment alleges that Brockman used a third-party to circumvent those requirements, to acquire the debt securities, and to conceal from the sellers valuable economic information. The indictment further alleges that Brockman used material, non-public information about the software company to make decisions about purchasing the debt. In addition, Brockman allegedly persuaded another individual to alter, destroy, and mutilate documents and computer evidence with the intent to impair the use of such evidence in a grand jury investigation.

Mr. Brockman has pleaded not guilty, and it should be remembered that these charges are just allegations.

It is clear from the indictment that at least one (probably two) individuals within Reynolds and Reynolds have cooperated with the Department of Justice. Additionally, Robert Smith, the CEO of Vista Equity Partners in San Francisco, admitted his part of the scheme and will be paying $139 million to the United States and will avoid prosecution.

The total alleged fraud is $2 billion.

There are numerous other interesting items within the indictment; here are just a few:

On or about June 3, 2007, BROCKMAN, using his encrypted email system, directed Individual One to purchase a computer program called “Evidence Eliminator” for Individual One’s computers…

On or about October 20, 2011, BROCKMAN, using his encrypted email system, directed Individual One to attend a money laundering conference “if possible under an assumed identity.”…

On or about December 9, 2012, BROCKMAN, using his encrypted email system, directed Individual One to change the scture in which the shares of Point were held, moving them to a “purpose trust” with a “dressed up charitable purpose” to avoid inquiries from banks and “the house” about the ultimate beneficial owners of Point.

Again, an indictment does not mean Mr. Brockman is guilty of the alleged offenses. However, the indictment shows a picture of deliberate disregard of US taxes. Mr. Brockman is facing many, many years and large financial penalties if found guilty of the 39 counts for which he faces trial.

And that’s a wrap on 2020, a dismal year that I hope we don’t have to experience ever again. May all of you have a Happy, Healthy, and Safe New Year.

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Phony Donations Yield Real Tax Evasion and Tax Fraud

Thursday, July 23rd, 2020

Have I got a deal for you! You can give me a donation of, say, $500,000, and I’ll give you $450,000 back! Yet get a write-off on your tax return for all $500,000 but you really only spent $50,000. Isn’t that great?

Yes, if it were legal it would be super. But it’s not, and the story here is one that apparently spans decades, involves an unrelated shooting incident that stunned the nation, and a still ongoing investigation into others.

Yisroel Goldstein is the former director at Chabad of Poway (California). You may remember that name from the horrible shooting that occurred at his synagogue in April 2019. Rabbi Goldstein lost parts of his hand in the shooting. One congregant was killed and two others were injured in the attack. After the shooting Rabbi Goldstein met with President Trump at the White House and Vice President Pence visited the synagogue.

But what we didn’t know was that the IRS and Department of Justice had been investigating the rabbi for two years preceding the shooting. So what was the fraud?

It’s a scheme known as the 90-10 fraud. Rabbi Goldtein collected $6.2 million in donations. He returned 90% of that to the donors with phony receipts; meanwhile, he kept 10% (or around $620,000) for himself. That resulted in a tax loss of $1.5 million over the last 8 years. That’s bad, but the scheme actually dates back decades: One taxpayer began participating in this scheme in the 1980s!

Rabbi Goldstein pleaded guilty last week, along with five other individuals. Given that at least 20 taxpayers total were involved in this (and only six have pleaded), it’s quite possible more indictments are coming. Rabbi Goldstein is cooperating with the IRS and Department of Justice in the ongoing investigation.

The DOJ is expected to recommend that Rabbi Goldstein be sentenced to probation because of his work in the shooting. The five others benefited with phony deductions and one conducted his own Ponzi scheme. All six have agreed to pay restitution.

There is no free lunch as far as making donations. If you donate to a church or synagogue, you actually have to donate the funds; kickback of the money is not allowed.

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Nothing for Something

Wednesday, November 21st, 2018

Have I got a deal for you! (It is, after all, the Holiday Season where we’re all looking for deals, right?) I can take your assets and hide them from anyone and everyone! Simply form one of my special Nevada Corporations, and, well:

Camouflaging your assets is the first step in implementing any asset protection plan. Remember, if a federal judge can find an asset, he can seize it. Conversely what he can’t find, or doesn’t know about, he can’t touch. Although I enjoy advertising bulletproof asset protection, the prescription for making an asset bulletproof is first to make it invisible.

And I also offer a hidden bank account program! With my new vanishing bank accounts, you have access to your money but nobody else does! No more worries from the government, or anyone else. The whole program retails for just under $10,000, and there are multi-level marketing opportunities, too! Who can refuse?

All of the above is what one Las Vegas man, Richard Neiswonger, offered through his Asset Protection Group, Inc. Back in 2011 he was indicted on various tax fraud charges. He was sentenced last week to 22 months at ClubFed and must make restitution to the IRS of $3,212,078.

This wasn’t Mr. Neiswonger’s first brush with the US government. The FTC had obtained an injunction against Asset Protection Group, but that didn’t stop them. The US Attorney’s office had requested another injunction in 2007. The sentencing press release details Mr. Neiswonger’s activities:

From 1999 to mid-2006, Neiswonger, who was imprisoned, and his business partner, formed Asset Protection Group, Inc. (APG) in Nevada in late 1998. Neiswonger, along with his business partner and a certified public accountant, conspired to promote false and misleading business information. Consumers would purchase the APG “asset protection” program for typically $9,800 and become APG “consultants,” who would sell “asset protection” services to clients who wished to conceal assets from potential litigants and creditors, as well as government agencies. The service allowed clients to place funds in bank accounts in the name of nominee entities that could never be traced back to the clients themselves. In turn, APG “consultants” received a portion of the client’s fees. These nominee entity accounts and other fraudulent conveyances, such as so called “friendly liens,” were used to divert and hide income from the IRS. Over 70 APG clients using the APG system had collective IRS liabilities totaling approximately $14 million.

Mr. Neiswonger not only hid others from the IRS, he hid $1 million through his attorney from the IRS.

A helpful hint to those reading this: It’s far, far simpler and easier to simply pay what you owe to the IRS. The scheme that Asset Protection Group offered was just that: an illegal scheme. Mr. Neiswonger did enjoy the fruits of his labors for a few years, but in the end he has to disgorge what he made and gets an almost two-year trip to ClubFed.

A helpful hint to those reading this: Don’t do this!

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Bozo Tax Tip #8: Publicize Your Tax Crimes on Social Media!

Wednesday, April 4th, 2018

Social media is really, really big these days. You can follow me on Twitter. I may even update my Facebook page one of these days. Of course, I’m not a tax criminal, and my posts hopefully add knowledge for others.

Of course, where you and I won’t go the Bozo contingent is quite happy to do so. Take, for instance, Rashia Wilson. Ms. Wilson posted a wonderful picture on her Facebook page:

Rashia Wilson (Image Credit: Tampa Police Department)

In the same post, she bragged:

“I’m Rashia, the queen of IRS tax fraud,” Wilson said May 22 on her Facebook page, according to investigators. “I’m a millionaire for the record. So if you think that indicting me will be easy, it won’t. I promise you. I won’t do no time, dumb b——.”

She’s doing 21 years at ClubFed. Oops…

A helpful hint to the Bozo tax community: Law enforcement does read social media. Indeed, the IRS will do a search of you on the Internet prior to a field examination (audit). So if you decide to go on the dark side of life, don’t brag about it online. A better course would be not to go on that dark side to begin with, but that rarely occurs to the Bozo community.

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“celebritytaxguy” Soon to be at ClubFed

Sunday, June 18th, 2017

Michael Joseph Calalang Cabuhat had been living the good life. He had a nice house in the Hollywood Hills (of Los Angeles) and drove a Ferrari 360 Spider. Mr. Cabuhat owned a tax practice in Glendale (near Los Angeles) and called himself “celebritytaxguy.”

I will be the first to state that you can make a nice living from a tax practice. Mr. Cabuhat’s methods, though, were on the illegal side. He pleaded guilty to defrauding clients of more than $1.2 million, and will have 46 months at ClubFed to think that over. He also must make restitution of $1,496,416 and will be sending the government just over $426,000 from the sale of his home (and the car).

What did Mr. Cabuhat do? He had two methods of bilking clients but they all had a basis in preparing two returns for each client (and I’m not talking about state returns). In some cases Mr. Cabuhat prepared a return showing a small refund, and gave that return to the client. The small refund amount was duly deposited into the client’s account. However, the actual return filed with the IRS showed a larger refund, with that extra amount being deposited into a bank account controlled by Mr. Cabuhat.

His other method was to prepare a return showing an amount due; however, the return filed with the IRS showed a refund (with that refund being deposited into his account). He also had the clients make the tax payment to him, so that those funds, too, would be absconded.

And of course, Mr. Cabuhat didn’t report the $1.2 million he pocketed from the fraud on his own tax return. And, yes, Mr. Cabuhat had a license from the California Tax Education Council (all California tax professionals are required to have a license, either be an EA, CPA, attorney, or obtain the license from CTEC). As I’ve said before, having a license won’t stop tax preparers from committing crimes.

As for the crime itself, it was guaranteed to be discovered in the long run. Sooner or later a client would be audited or obtain a transcript of his return, and it wouldn’t match the return copy that the client had. Or even the IRS might wonder why 150 tax refunds were all deposited into the same bank account.

As noted in the press release from the Department of Justice,

…Judge Walter said Cabuhat’s scheme was “vicious” because it led to both financial and emotional harm to his victim-clients. Judge Walter noted that the stolen money was used simply to enhance Cabuhat’s lifestyle, allowing him to obtain a big house and a fancy car “all on the backs of these individuals who placed their trust” in Cabuhat.

Mr. Cabuhat will have nearly four years to think this all over.

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